How I Assessed My Debt Options: Sample Cases

Assessing debt options comes down to finding the right debt solution for your individual circumstances. There are only so many debt options available, and not all solutions will be applicable in each scenario. Here are a few case studies that may help you to choose the right solution.

The Do It Yourself Debt Option

Marc and Arlene lived in rented council flat and had around £30,000 of combined debt on credit cards and loans.

Marc had just lost his job and they were now a single income family with two children. They had missed a few months of repayments on most of their loans and credit cards. The interest charges were now growing rapidly as were the charges for missed payments.

Debt Solution

Losing a job will always bring problems especially when it comes to maintaining monthly debt payments. A short term solution in this case would be to phone all of the creditors and arrange for a period of lower payments with frozen interest. Debtors should always contact creditors as early as possible in order to avoiding mounting interest and charges. The lowered repayments should be comfortably affordable until Marc’s employment situation changes for the better.

The Bankruptcy Debt Option

Gail lives in rented accommodation and has around £50,000 worth of debt built up over various credit cards and loans. She has been on long term sickness and does not see returning to work an option in the foreseeable future. Gail did not have any payment protection on her loans and credit cards. Debt collection agencies have been telephoning and sending letters constantly.

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Debt Solution

With the large amount of debt and little hope of making repayments the best option may be bankruptcy. An Individual Voluntary Arrangement would not be an option as Gail does not have the necessary funds to make monthly payments. Bankruptcy is aimed at people who have debts that they cannot maintain, and the bankruptcy can be discharged in around a year. There are certain negatives to bankruptcy such as a bad credit record and there may be a fee to pay for this debt solution.

Individual Insolvency Arrangement

Tom has just finished his University course and has debts of £20,000 plus £9,000 in student loans. He shares accommodation with university friends and earns £19,000 per year since leaving university. His debts have become unmanageable and he is now in the position where he has almost no disposable income at the end of every month due to debts.

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Debt Solution

An Individual Voluntary Arrangement (IVA) may be beneficial in Tom’s case. It is a formal arrangement between creditors and debtors using an Insolvency Practitioner. An IVA should restructure Tom’s debts to leave him with more disposable income each month. It may cut down on a large percentage of the debt he eventually has to pay and the monthly repayment should be a lot lower. Again, there are negative aspects such as a bad credit record that will make a difference to any future borrowing.

Debt Consolidation Option

Jack and Mary had £30,000 worth of debt on credit cards and loans with interest rates standing at an average of 15% per debt. They own a three bedroom house that they have been paying a mortgage on for 15 years. They have a mortgage with a 6% interest rate with only 10 years to pay to clear this mortgage. They have also built up a large amount of equity on their home.

Debt Solution

Jack and Mary should arrange to release some of the equity from their home in the form of debt consolidation loan. This would allow them to clear all of their high interest loans and credit payments into one manageable low interest loan or by consolidating the debt into their mortgage. This can usually be arranged through their own mortgage lender or through another lender who offers better interest rates. This option can save Jack and Mary thousands of pounds in loan and credit repayments.

An early solution is always the best option whenever debt problems arise. Seeking advice and information from agencies such as the Citizens Advice or the Consumer Credit Counselling Service should be the first point of call. Finding the right debt solutions will save money and relieve a great deal of debt stress.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our IVA Eligibility Checker lets you find out whether an Individual Voluntary Arrangement could be right for you, what you might pay, and which alternatives could suit your situation better. Try it now →